It's back to the drawing board for KiwiRail on the future of the Interislander as the government axes new upgrades.

Contracts were signed to buy two new mega-ferries and upgrade portside infrastructure, but Finance Minister Nicola Willis says the cost has got too high.

However, Jon Reeves of the Public Transport Users Association told Tim Dower that backtracking on contracts does reputational damage to the country.

He claims this acts as a warning for international companies, that they can't trust New Zealand to honour contracts.

LISTEN ABOVE 

• "A disgrace": Former Govt. rushed infrastructure projects despite advice against
• KiwiRail chief executive 'disappointed' with the Government's choice to decline extra funding
• 'We'll explore other options': Minister Nicola Willis firmly turns down KiwiRail funding request