Pazgaz in 2025: Paz’s Second Energy Engine, With Operating and Regulatory Friction

The main article argued that Paz at the end of 2025 no longer stands on one leg. This follow-up isolates the second energy leg: Pazgaz, electricity supply, and Sunray Texas. The reason is straightforward. This is no longer a side note. The gas and renewables segment ended 2025 with NIS 1.177 billion of revenue, NIS 106 million of operating profit, and NIS 174 million of EBITDA.

What is easy to miss is that the segment’s acceleration did not come only from the local business. In the company presentation, out of NIS 174 million of segment EBITDA, Pazgaz itself contributed NIS 150 million and Sunray Texas contributed NIS 24 million. In 2024, the split was NIS 141 million from Pazgaz and NIS 10 million from Texas. In other words, out of the NIS 23 million increase in segment EBITDA, NIS 14 million came from the maturing Texas project and only NIS 9 million came from Pazgaz. That is the core point. The second engine is real, but the 2025 step-up says as much about a first full commercial year in Texas as it does about cleaner local execution.

Three quick findings:

• The segment is already material, but most of the 2025 EBITDA improvement came from Sunray Texas rather than from Pazgaz alone.
• Pazgaz itself grew, but not with effortless operating leverage: revenue rose 18%, gross profit rose 4%, and EBITDA rose 6%.
• Electricity supply has already signed tens of thousands of residential customers, yet the company still describes the activity as non-material, is reassessing its scope because of regulatory uncertainty, and enters the first half of 2026 with an open collective bargaining process and a declared labor dispute.

The Engine Is Already Large, but the Source of the Acceleration Matters

Pazgaz is not an appendix. The company estimates its weighted average market share in Israel’s LPG market, excluding the Palestinian Authority, at about 24%, in a market with roughly 60 gas suppliers. This is not a niche player and not an experimental activity. At the segment level, revenue rose to NIS 1.177 billion from NIS 998 million, while operating profit increased to NIS 106 million from NIS 102 million.

But from a thesis perspective, stopping at the segment headline misses the real read. 2025 showed that this layer already makes a meaningful contribution, but it also showed that profit acceleration did not come purely from a local LPG and electricity machine suddenly moving into a new gear. A meaningful part of it came from the solar project in Texas, which completed construction and began full commercial operation in August 2024. So the 2025 message is double-edged: Paz now has a genuine second energy engine, but anyone trying to judge its quality has to separate local Pazgaz from Texas.

That chart captures the non-obvious part of the story. Pazgaz improved, but most of the segment’s EBITDA increase came from Texas. That does not weaken the case. It changes it. 2025 is not proof that local Pazgaz has already worked through all of its frictions. It is proof that Paz now has two legs inside its second engine: a local leg exposed to competition and regulation, and a US leg that has already entered a full commercial year.

Pazgaz Itself Grew, but Not With Smooth Operating Leverage

Pazgaz itself finished 2025 with improvement across the main metrics: revenue increased to NIS 1.177 billion from NIS 998 million, gross profit rose to NIS 287 million from NIS 277 million, and EBITDA climbed to NIS 150 million from NIS 141 million. The segment improvement rested on better LPG margin and higher sales volumes. That matters because it means the local business did not move forward only by counting more customers or by capturing a one-off pricing event.

Still, the gap between revenue growth and EBITDA growth says something important about operating quality. When revenue grows 18% but EBITDA rises only 6%, that suggests an engine that is working, but not one where incremental revenue falls cleanly to the bottom line. This is a business that has to transport, store, extend credit, comply with regulation, maintain service and engineering capabilities, and operate in a market with heavy price and payment-term sensitivity. The growth is real, but it is not frictionless.

This is also where strategy becomes relevant. Pazgaz explicitly says it is pursuing a plan to strengthen LPG and improve operations, including through mergers and agency acquisitions and through a more unified operating model. In 2023 and 2025 it signed deals to acquire the distribution rights of independent agencies in Ramla, Kiryat Shmona, and Ashkelon, and once those deals were completed distribution in those regions moved fully to Pazgaz. In addition, by the second quarter of 2026 the company expects to sign another independent-agency acquisition, subject to conditions and competition approval. This is not the language of a harvesting asset. Management is signaling that it wants deeper operating control.

But that is also where the friction sits. Improving the model through agency acquisitions and tighter operating control can lift efficiency, yet it also raises integration complexity, increases labor sensitivity, and pushes Pazgaz toward more direct responsibility across the distribution chain. That is why 2025 reads as a year of strengthening, not a year of resolution.

Electricity Is a Real Opportunity, but Still Not a Proven Economic Model

Pazgaz has held a license to supply electricity without generation since July 2021. Since 2023 it has been signing agreements with private power producers, allowing its electricity consumers to move under their licenses as alternative suppliers. By the time the annual filings were published, it had already signed tens of thousands of residential customers to electricity-supply agreements and had built both a dedicated sales-and-service center and a digital onboarding system. In product and distribution terms, this is far beyond a token pilot.

But the picture remains cautious. In the general business description, the company still describes retail electricity marketing and energy-center management for commercial customers as non-material at this stage. Later, in the strategy section, it says that because of regulatory changes and uncertainty around electricity tariffs, it is reassessing the scale of the activity. This is not the language of a market that has already settled. It is the language of a growth engine being built inside a moving rulebook.

The friction here is not only regulatory. It is economic. Residential electricity customers sign agreements for an unlimited term, with the option to terminate at any time. On top of that, household electricity demand rises in the peak summer and winter periods, exactly when electricity prices also rise materially above the fixed price paid by the end customer. The company states explicitly that these swings require careful financial management to preserve cash-flow stability and profitability from electricity supply over the course of the year. That is an important point. Even if customer growth looks impressive, it still does not prove an easy margin structure.

That seasonality is not only about electricity, of course. LPG is stronger in the first and fourth quarters because of heating demand. But precisely because Pazgaz sits on a mix of LPG and electricity, the implication is that Paz’s second energy engine is not a straight, smooth line. It requires management of seasonal demand, pricing, credit, and infrastructure, not just customer acquisition.

The regulatory layer is moving quickly as well. In April 2024, the Electricity Authority opened the door for residential consumers to move to private suppliers even without a smart meter, and later extended the decision to consumers with basic meters. In December 2024, electricity tariffs for 2025 were updated in a way that raised the household tariff by about 3.5%, while the company itself notes that such changes in tariff components can affect its profitability. In May 2025, a bilateral-market framework for virtual suppliers was introduced, and in November 2025 a temporary availability-certificate mechanism was added, both effective from the start of 2026. Pazgaz is therefore not operating in a market whose rules are already locked. It is operating in a market that is opening, being reshaped, and being repriced at the same time.

Infrastructure, Credit, and Labor: Three Frictions the Headline Misses

Anyone looking at Pazgaz only through customer count or EBITDA can miss how infrastructure-heavy the business really is. In 2025, Pazgaz imported LPG from a single supplier, and the company states explicitly that it depends on that import supplier and on the refineries for LPG supply. If that supplier and the refineries were to stop supplying LPG, increasing imports or shifting to another import supplier could involve material costs.

That dependence also runs through KATSAA. Pazgaz leases 3,000 tons of LPG storage capacity under long-term agreements whose terms run between 2021 and 2038, receives unloading, storage, and withdrawal services from KATSAA through 2038, and also receives portable-cylinder filling services under an agreement that remains in force through December 31, 2026. Both the unloading agreement and the filling agreement include minimum purchase commitments and tariff terms set in the contracts. This is not only a demand story. It is also a question of access to infrastructure, operating continuity, and minimum-volume obligations.

Then there is the working-capital structure. Pazgaz’s average customer-credit days in 2025 stood at 63 days, and its average operating inventory days ranged between 16 and 31. At the same time, the market is highly competitive, customers are sensitive to price and payment terms, and the ability to extend credit to business customers is itself described as a competitive advantage. The implication is clear: Pazgaz’s growth does not rest only on selling a product. It also rests on the ability to finance the customer and manage logistics. This is an important engine, but not a light one.

The labor layer matters especially here. In December 2021, Pazgaz signed its first collective agreement for 4.5 years, running through June 11, 2026. In February 2025, it signed a special collective arrangement related to employee incentives. By the time the annual filings were published, negotiations with the Histadrut over a new agreement were already under way, and on February 19, 2026 a labor dispute was declared, with authority for organizational actions from March 5, 2026 onward, including a strike, subject to Histadrut guidance. The stated issues include the conduct of the negotiations, outsourcing, workloads, and decision-making around employment terms. The company says it cannot estimate the magnitude of the impact, if any.

The timing stands out. Pazgaz entered the first half of 2026 while trying to deepen control over distribution, expand activity, manage an electricity market with unstable regulation, and preserve service in a model that depends on logistics, installations, safety, and collections. That is why the labor issue is not a legal footnote. It is part of the question of whether Paz’s second engine can become a high-quality one.

Conclusion

Pazgaz is already past the promise stage. It is a material part of Paz’s 2025 story. But it is still not an engine operating in a vacuum. Texas gave the segment EBITDA a meaningful push, while the local activity itself improved in a respectable but not friction-free way. Electricity has already built a real customer base, but has not yet proven a stable economic model under shifting regulation. The domestic LPG platform benefits from scale, footprint, and brand, but it also runs on credit, external infrastructure, and labor relations.

The thesis is therefore very specific: Paz has already built a second energy engine, but in 2026 it still has to prove that the engine is not only large, but durable. If Pazgaz can hold LPG margins, stabilize the electricity layer under the new regulatory architecture, and get through the collective bargaining cycle without meaningful operational disruption, this engine could look materially higher quality than the market currently gives it credit for. If one of those three axes starts to grind, 2025 will look more like a year of partial maturation than a clean breakout year.