* Congo's prime minister says economy to grow 9.5 pct this year
* Ponyo says mining output to be 'much higher' in 2014
* Says government will listen to companies on new mining code
* Congo keen to push ahead with Inga hydroelectric power dam
By Peter Jones
KINSHASA, March 17 (Reuters) - A sharp increase in mining production will drive economic growth in Democratic Republic of Congo to around 9.5 percent this year, one of the highest rates in Africa, Prime Minister Augustin Matata Ponyo said in an interview.
Congo, a country the size of Western Europe in the heart of Africa, has rich reserves of gold, diamonds, copper, cassiterite and coltan but development of its resources has been hampered by poor infrastructure, corruption and decades of conflict.
Ponyo, a technocrat who took over as prime minister in April 2012, is credited with taming inflation, curbing government debt and boosting economic growth on the back of a mining bonanza.
Congo's roughly $20 billion economy grew by 8.5 percent last year, according to the IMF, as copper production hit a record 942,000 tonnes - making it the largest producer in Africa.
"Mining production is practically exploding and it's forecast that in 2014 we'll see much higher production than in 2013," Ponyo told Reuters. "For 2014, we predict economic growth of around 9.5 percent ... among the highest on the continent."
His forecast topped the IMF's estimate that Congo's economy would grow by 8.7 percent this year. Despite robust growth in recent years, most of Congo's 65 million people live in poverty.
Ponyo said Congo's growth and low inflation - 1.1 percent in 2013 according to the IMF - made it a special case in Africa. Mining makes up around 30 percent of Congo's economy, the government says.
Production boomed last year as a number of expansion projects came on line - including at Glencore Xstrata's Kamoto Copper Company (KCC). Freeport McMoRan is also ramping up output at its giant Tenke Fungurume Mine in the southeastern copper-rich province of Katanga.
The prime minister sought to allay investors' concerns over proposed new mining and oil codes, due to be approved during a new parliamentary session that began on Saturday.
The government has held talks with investors over a mining code would raise the state's stake in new projects to 10-15 percent and triple royalties to 6 percent. Ponyo said he would take onboard the opinions of major international companies.
"We are obliged to take their observations into account, while preserving the interests of Congo," he said in the interview on Saturday.
LACK OF ELECTRICITY HAMPERS MINERS
Ponyo has said the government's recent success in pacifying some armed groups in eastern Congo - where millions have died from violence, hunger and disease in the past two decades - has helped attract mining investors.
Congo's soil is estimated to hold trillions of dollars in minerals but a lack of infrastructure has bedeviled its development. The giant country has just 2,000 km (1,250 miles) of paved roads and miners in complain production has been limited by a lack of electricity.
In a January letter to President Joseph Kabila, seen by Reuters, Ponyo set out plans to ration energy to mining companies and called for a suspension of expansion plans.
"The energy deficit is putting a brake on the development of the mining sector and consequently of the country," Ponyo said. "The government is working to find durable solutions."
The most important of these is a long-delayed expansion of the giant hydroelectric power station at Inga, 250 km (156 miles) southwest of Kinshasa on the Congo River.
Three consortiums are bidding for the contract to build Inga III and sell the power it generates. The project was made more attractive last year when South Africa signed a deal to purchase half of the 4,800 MW produced by the new power station.
Ponyo said the government was keen for construction to begin before the World Bank's estimated start date of 2016: "It's up to us to work with the World Bank and other partners to explore possibilities to shorten the timeframe."
The World Bank is expected to approve $73 million of financing for the project on March 20 but progress has been slow in deciding on a private partner to contribute the majority of the estimated $12 billion construction costs.
Anti-corruption campaigner Transparency International ranked Congo 154 of 177 countries on its 2013 corruption index, an improvement from its position of 160 the previous year.
Ponyo said his government was working on ways to slash tax avoidance, smuggling and graft. The government will pay public servants via banks, replacing cash payments that allowed senior officials to pilfer salaries, Ponyo said.
Speculation has been rife since October, when President Joseph Kabila said he would form a national unity government, that Ponyo would be replaced as premier but he said he had no information on any reshuffle. "Since October, the government has continued to work with the same intensity," he said.
The government is moving towards privileging Congo's franc over the U.S. dollar, widely used due to the instability of the national currency. Certain taxes were now paid in francs but there were no plans to legislate against the dollar, Ponyo said.
"It's a process that we have initiated that will go little by little so everyone can adjust to it," he said. (Editing by Andrew Heavens and Daniel Flynn)