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UPDATE 1-Zambia's energy regulator allows state power utility to hike prices

(Adds average price increase, fuel price, government comment)

LUSAKA, Dec 27 (Reuters) - Zambia's state power firm Zesco will increase the price of electricity by an average 113% for all customers from next month as the African nation seeks to attract investment into power generation, the energy regulator said on Friday.

Zambia's Energy Regulation Board said it had allowed Zesco to increase electricity tariffs by more than 200% for residential customers consuming the least amount of power.

On Thursday, the energy regulator also increased the price of fuel, citing the depreciation of the kwacha and higher crude oil prices, sparking a public outcry against the decisions.

State House spokesman Isaac Chipampe said in a statement on Friday that President Edgar Lungu had ordered a reduction in his salary and that of his cabinet by between 15% and 20% from next month.

Lungu has also ordered a reduction in salaries for all non-unionised government officers, including those working in state-owned companies, Chipampe said.

"The money realised from this decision will go towards ameliorating the impact that the increase would have brought on the masses," the statement said, citing Lungu.

Zambia's electricity supply shortage increased to 810 megawatts (MW) in November from around 750 MW in September, state power firm Zesco said on Dec. 12, adding it would quickly commission new power plants to plug the gap.

The new measure will not affect global mining firms including First Quantum Minerals, Glencore, Barrick Gold Corp and Vedanta Resources which pay a flat tariff of 9.30 U.S. cents/kilowatt hour (kWh).

The price of electricity for many categories of commercial customers would nearly double, the energy regulator said, adding that Zesco needed revenue to cover its operating costs.

"Zesco is facing serious financial problems with regard to its profitability, liquidity, solvency and efficiency," it said.

Africa's second biggest copper producer has seen electricity supply dwindle due to low water levels at hydropower dams as a severe drought sweeps through southern Africa due to climate change.

In September, Zambia said it would import 300 MW of power from South Africa's Eskom, which itself is struggling with generation problems and has been implementing power cuts. (Reporting by Chris Mfula; Editing by Louise Heavens and Mark Potter)