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COLOMBO, June 9 (Reuters) Sri Lanka's government is ready to pay an outstanding 7 billion rupee ($70 million) subsidy to fuel retailer Lanka IOC , the Treasury said on Friday, as the firm's fuel pumps ran dry after it stopped supplies.

Treasury Secretary P.B. Jayasundara told Reuters that 1 billion would be repaid in cash and the rest in a non-transferable bond.

The company, the Sri Lankan unit of Indian Oil Corp.

, said it was happy with the deal.

''The cabinet has granted approval for the settlement between the government officials and IOC,'' Jayasundara said.

''If they come today, we will pay now.'' ($1=103.30 rupees) REUTERS PV HS1320