Comment 13 for bug 1674946

Using the clout-init :
root@user:/var/lib/cloud# dpkg -l | grep cloud-init
ii cloud-init 0.7.9-90-g61eb03fe-0ubuntu1~16.04.1 all Init scripts for cloud instances
Rebooting the ubuntu server cloud-init fails to start .

Error in the cloud-init.log
2017-04-14 20:49:56,838 - util.py[DEBUG]: Reading from /proc/uptime (quiet=False)
2017-04-14 20:49:56,838 - util.py[DEBUG]: Read 10 bytes from /proc/uptime
2017-04-14 20:49:56,838 - util.py[DEBUG]: cloud-init mode 'init' took 0.065 seconds (0.06)
2017-04-14 20:49:56,838 - handlers.py[DEBUG]: finish: init-network: SUCCESS: searching for network datasources
2017-04-14 21:03:09,735 - util.py[DEBUG]: Cloud-init v. 0.7.9 running 'init-local' at Sat, 15 Apr 2017 04:03:09 +0000. Up 801.41 seconds.
2017-04-14 21:03:09,735 - main.py[DEBUG]: No kernel command line url found.
2017-04-14 21:03:09,735 - main.py[DEBUG]: Closing stdin.
2017-04-14 21:03:09,737 - util.py[DEBUG]: Writing to /var/log/cloud-init.log - ab: [420] 0 bytes
2017-04-14 21:03:09,738 - util.py[DEBUG]: Changing the ownership of /var/log/cloud-init.log to 104:4
2017-04-14 21:03:09,739 - util.py[DEBUG]: Attempting to remove /var/lib/cloud/instance/boot-finished
2017-04-14 21:03:09,739 - util.py[DEBUG]: Attempting to remove /var/lib/cloud/data/no-net
2017-04-14 21:03:09,739 - handlers.py[DEBUG]: start: init-local/check-cache: attempting to read from cache [check]
2017-04-14 21:03:09,739 - util.py[DEBUG]: Reading from /var/lib/cloud/instance/obj.pkl (quiet=False)
2017-04-14 21:03:09,739 - stages.py[DEBUG]: no cache found
2017-04-14 21:03:09,739 - handlers.py[DEBUG]: finish: init-local/check-cache: SUCCESS: no cache found
2017-04-14 21:03:09,739 - util.py[DEBUG]: Attempting to remove /var/lib/cloud/instance
2017-04-14 21:03:09,739 - util.py[WARNING]: failed stage init-local
2017-04-14 21:03:09,740 - util.py[DEBUG]: failed stage init-local
Traceback (most recent call last):
  File "/usr/lib/python3/dist-packages/cloudinit/cmd/main.py", line 647, in status_wrapper
    ret = functor(name, args)
  File "/usr/lib/python3/dist-packages/cloudinit/cmd/main.py", line 332, in main_init
    init.fetch(existing=existing)
  File "/usr/lib/python3/dist-packages/cloudinit/stages.py", line 349, in fetch
    return self._get_data_source(existing=existing)
  File "/usr/lib/python3/dist-packages/cloudinit/stages.py", line 250, in _get_data_source
    util.del_file(self.paths.instance_link)
  File "/usr/lib/python3/dist-packages/cloudinit/util.py", line 1627, in del_file
    raise e
  File "/usr/lib/python3/dist-packages/cloudinit/util.py", line 1624, in del_file
    os.unlink(path)
IsADirectoryError: [Errno 21] Is a directory: '/var/lib/cloud/instance'

root@user:/var/lib/cloud# lsb_release -a
No LSB modules are available.
Distributor ID: Ubuntu
Description: Ubuntu 16.04.2 LTS
Release: 16.04
Codename: xenial

What went wrong and how to fix this ?