The board of directors of Ecuador's state-owned oil company, Petroecuador, has approved plans to build a new refinery at an estimated cost of $4 billion, interim Energy Minister Jorge Alban told Dow Jones Newswires Wednesday.

"Construction will be carried out through a strategic alliance between Petroecuador and another (foreign) state oil company, which will be determined through a tender process," Alban said.

A 12-hour board meeting held Tuesday, and run by President Rafael Correa, set out the broad guidelines for new energy projects to be carried out under the current administration, which took office January 15.

The new refinery would be built in the coastal province of Manabi, and would have the capacity to process around 300,000 barrels of heavy crude oil per day, Alban said.

Ecuador is a net exporter of crude oil, but the country is forced to import processed petroleum products such as gasoline because of a lack of refining capacity. Furthermore, much of the new oil discoveries in Ecuador are heavy crude, and cannot be processed at the country's three existing light-crude refineries.

Still, the minister said the timetable for construction of the refinery is linked to development of the mammoth Ishpingo-Tambococha-Tiputini oil block, which is located inside the Yazuni National Park.

Tuesday's board meeting ratified the government's decision to wait until June 2008 to decide whether to proceed with development of ITT. The government has offered to refrain from developing the fields in exchange for a payment from the international community of $350 million per year.

The offer, designed to appeal to environmental interests, hasn't yet received any firm commitments.

Petroecuador, meanwhile, will proceed with licensing for the project in case the decision is taken to proceed, Alban said.

Brazil's Petroleo Brasileiro (PBR), Chile's Enap and China Petroleum and Chemical Corp. (SNP), or Sinopec, have all expressed interest in developing ITT, which has some 1 billion barrels of crude oil reserves.

Alban said Venezuela's state oil company, Petroleos de Venezuela, or PdVSA, is a possible partner for the refinery project, but added that other companies have also expressed interest, without disclosing names.

Correa's administration has opted for political reasons to partner with state oil companies, rather than private sector companies.

Part of the investment would come from Ecuador's Feiseh oil fund, which accumulates reserves from three fields confiscated in May 2006 from Occidental Petroleum Company (OXY). The remainder would be put in by the partner, although no final percentages have been determined yet, he said.

"It's very premature to talk about that. The approval is given, but the call for the tender process as well as defining the details depends on various factors, including the development of (Petroecuador's) oil fields," Alban said.

The board also approved construction of a gas storage terminal to receive natural gas imports, through a partnership between the government-run Ecuadorean Petroleum Fleet, or Flopec, and Petroecuador, Alban said.

Ecuador currently imports about 80% of its liquefied gas and the current contract with international trading firm Trafigura Beheer B.V expires in December.

An initial tender process to build the onshore terminal was recently abandoned because bids of between $160 million and $285 million for construction were above the government's budgeted figure of around $97 million.

Ecuador will hire floating vessels to store gas until the onshore terminal is built, he said. The permanent land-based terminal could could reduce operating costs by $30 million per year, by removing the need to hire floating storage.

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