Venezuelan president Hugo Chavez has reached an agreement with his Ecuadorian counterpart Rafael Correa over the planned construction of a major new oil refinery ion the Pacific Coast.

Announcing the deal after a meeting in the city of El Arono, Mr Chavez explained that Venezuela's state-owned producer PDVSA will take a 49 per cent stake in the new $30 million site, with Petroecuador to hold a controlling 51 per cent share.

He added that the new refinery, which will be located in the province of Manabi, in the west of Ecuador, will be capable of producing as much as 300,000 barrels of oil a day, with a number of by-products, including liquefied gas, also likely to be produced, thereby helping the South American country to save around $3 billion a year and reduce its dependence on foreign oil supplies.

However, Mr Correa noted that the two countries are still looking into the possibility of opening up the project to international investment.

Currently, Venezuela has plans to build further refineries in both Brazil and Nicaragua.