"The government has given this investor two years to start the project," Yapa said but stopped short from disclosing Star Petro's refinery capacity.

A net oil importer, Sri Lanka consumes around 3.6 million metric tones each year, of which around 2.0 million metric tones are refined at the island's sole refinery owned by state-run Ceylon Petroleum Corp.

The Sapugaskanda refinery now produces around 50,000 barrels per day, in mix of diesel, gasoline, kerosene, furnace oil and naphtha.

In April, Ceypetco sought a 500 million dollar loan from Saudi Arabia to double its oil refinery capacity to 100,000 barrels per day.

Since Sri Lanka's production falls short of total requirement, CPC also hopes to buy some of their requirements once the Hambantota refinery starts, Yapa said.

Greater dependence on locally refined products could also bring about a saving of between 5-7 dollars on each a barrel, he said.

Soaring global crude prices will push Sri Lanka's oil bill to 2.0 billion dollars this year from 1.6 billion in 2005.

Fuel prices were last revised by around five percent in June, and the government is now resisting another hike, amidst official noises of promising not to subsidise retail fuel prices this year.

CPC, which controls a third of the local retail market, is also demanding around 9-billion rupees from the treasury, after selling fuel at a steep discount to world prices from Jan-May.