EU assistance to north Cyprus tangled in conflict

"The construction of a seawater desalination plant, which is the programme's largest project, ended in failure," said the auditors. "More generally, the sustainability of the projects is often in doubt."

The seawater desalination came with a €27.5 million price tag but the project fell apart when Greek Cypriot workers were denied access to the site by Turkish armed forces in 2010.

But the European Commission may be partly to blame, say the auditors. "By contracting the works at the latest possible moment, the commission also missed an opportunity to offer the contract to another tenderer," the Court said. The contract was terminated in December 2011.

Cyprus, which is next in line to assume the six-month EU presidency is the only member state to host military bases from another EU member. The UK has two bases on the island. The UN also has about 1,000 soldiers still in place.

The de-facto buffer zone separating the Turkish north and the Greek south has also yet to be entirely demined. Meanwhile, only Turkey recognises the legitimacy of the self-proclaimed Turkish Republic of Northern Cyprus.

An April 2004 referendum to join the two halves was overwhelmingly rejected by Greek Cypriots, while some 65 percent of Turkish Cypriots approved it. A month later, Cyprus joined the EU as a divided member state.

The entire island is legally part of the EU but the application of EU laws and standards is mostly suspended in the northern territory.

Consequently, the European Commission was unable to set up a delegation in the Turkish-controlled half. Instead, it had to establish a headquarters-based task force in the south with a local programme support office in the northern part of Cyprus.

Unlike normal delegations, the support office had no head and had to defer all its decisions back to commission headquarters.

"The political context was clearly complicated," said David Bostock, a member of the Court of Auditors who presented the report.

Gas discovered off Cypriot coast

Meanwhile, Cyprus says some 100 trillion cubic feet (tcf) of gas lies off its coastline.

On Monday, Turkey threatened sanctions against 29 companies bidding to explore for oil and gas deposits in the area, with Ankara saying a solution to the island's division must be addressed prior to gas exploration.

Cyprus says the undersea reservoirs lies within its exclusive economic zone (EEZ) enabling it to explore and exploit resources up to 200 nautical miles from its coastal baseline.

The island has already ratified delimitation of EEZ agreements with both Egypt, Lebanon and Israel and is currently negotiating agreements for the common exploitation of the hydrocarbons.

But Turkey contests existing maritime boundary demarcation agreements with Cyprus.

Cyprus, for its part, has promised to make integrated maritime policy a focus point of its EU presidency starting July. The policy covers areas from customs rules to pollution and coastal tourism.

Relations with Israel have also been strengthening since 2009, most recently in the area of hydrocarbons.

"We have to co-operate in order to maximise our profits," Cypriot minister of foreign affairs Erato Kozakou-Marcoullis told reporters in Brussels last week.

Cyprus expects to fully exploit the offshore natural gas within 10 years.