Interislander's main rival, Bluebridge, is worried about the Government paying to lengthen the Interislander ferry Aratere, official papers show.
The ship will be cut in half in March so it can be lengthened by about 30 metres, which will increase rail capacity by 27% and vehicle capacity by 30%.
The $42 million project is being paid for with Government funds set aside for state-owned enterprise KiwiRail, as part of its turnaround plan.
A Ministry of Transport briefing to Transport Minister Steven Joyce, obtained by Radio New Zealand under the Official Information Act, shows Strait Shipping, which operates the Bluebridge brand, is concerned the extension will give Interislander extra passenger and commercial vehicle capacity without its having to carry the capital cost.
The company says it considers that will give Interislander a competitive advantage, as Strait Shipping is required to bear the full cost of any capital improvements.
Mr Joyce says the intent of the lengthening is not to give Interislander a competitive advantage over Strait Shipping, but it may happen.