LAGOS - Nigeria said on Friday it plans to procure 3.5 million electricity meters before the end of year to improve revenue for its cash-strapped power sector, where more than half of the customers are billed by estimates.

The government signed an agreement last month with the Nigerian Sovereign Investment Authority to finance 10 million electricity meters for households and businesses at the cost of 1.325 trillion naira ($946 million), within five years.

While power cuts are common in Nigeria, inadequate metering is partly blamed for low revenue at utilities which fail to recover a third of all invoices issued.

"This year 2 million meters would be procured plus the 1.5 million meters being procured with World Bank support. We are going to have 3.5 million meters installed by the year end," Adebayo Adelabu, Nigeria's minister of power said at an energy conference organised by a local newspaper, BusinessDay.

The minister said most of the supply would be sourced from international vendors, while a small quantity is expected to come from local manufacturers due to their limited capacity. Chinese companies have often supplied meters to Nigeria.

Poor metering is a contentious issue in Nigeria, where 7 million out of about 13 million customers are unmetered according to government data. Previous efforts to meter all customers have run into problems.

Customers without meters have to pay a fixed, estimated charge regardless of how erratic the supply from the creaking grid. Last year, 57% of all complaints received were about disputed bills, the country's energy regulator said in a report.

The minister said competitive bidding for the first batch of 1.5 million meters has already been concluded and delivery is expected within months.

He also said the government has agreed to release 20 billion naira to electricity distribution companies to procure meters for big users for whom tariffs were raised in April. This will ensure they are all metered by September. ($1 = 1,400.0000 naira)

(Reporting by Isaac Anyaogu; Editing by Alexander Smith)